The National Treasury says the government will need upto 2026 to dispense with huge debt repayments and calibrate Kenya’s economy back to a sustainable path.
As a result, in the 2023 Medium Term Debt Strategy, Treasury CS Professor Njuguna Ndung’u has proposed that the government must immediately tame its borrowing appetite, regretting that even the loans limit of Sh720.1 billion for the Financial Year 2023/24 had veered off the path to sustainability.
Prof Ndungú recommends an annual borrowing limit of Sh580.9 billion instead, which will need significant revenue mobilisation to achieve.
“Public debt sustainability indicators are projected to begin improving in 2026 after settlement of major maturities in 2024, 2025, and 2026 coupled with anticipated recovery in the exports sector as the global economy recovers from 2020 Covid-19 pandemic effects and shocks to global supply chain,” said the National Treasury in the 2023 Medium Term Debt Strategy.
This means that it is not until a year to the next general election that President William Ruto’s government will have dealt with the debt crisis, one of his major campaign pledges.
The country’s public debt sustainability indicator, such as debt service costs as a fraction of exports, has deteriorated owing to the Covid-19 pandemic and aggravated by the looming global recession that has weakened the shilling and disrupted the global supply chains.
Moreover, liquidity in the global financial market has tightened, making it difficult for the country to refinance some of its debt by issuing Eurobonds.
This is even as the Treasury prepares for major debt repayments in 2024, 2025 and 2026.
The Treasury also expects the debt sustainability to be aided by the implementation of the 38-month programme that Kenya has with the International Monetary Fund (IMF), which is aimed at helping the country reduce debt vulnerabilities by increasing tax revenues and cutting non-essential spending.
By end of June 2024, Kenya is expected to make a bullet payment of $2 billion (Sh245 billion) for a maturing Eurobond amid tightening liquidity in the global financial market.
President William Ruto has insisted that his priority will be the reduction of debt, noting that he will instead rely heavily on taxes to fund his budget for the next five years.
Kenya’s public debt has in the last 10 years been growing very fast as the government of former President Uhuru Kenyatta took up loans to build mega infrastructural projects such as the standard gauge railway, which gobbled up slightly over Sh600 billion.
The government has also incurred billions of shillings to build roads, set up energy projects, and expand sea and airports, a situation that has pushed up the country’s debt level to Sh9.145 trillion.
Massive accumulation of debt, especially commercial loans such as the Eurobonds, has resulted in a spike in debt service costs, with billions of shillings in taxes going to interest payments at the expense of critical public services.
Kenya, with the IMF and World Bank, say has a high debt to distress, and now wants to rely more on cheaper loans to fund its budget, lengthen the maturity of public debt by issuing medium-term to long-dated bonds and deepen the domestic debt market.
According to Treasury, for Kenya to revert public debt stock and profile to a sustainable path by 2026 annual borrowing limits should be maintained below four per cent of the gross domestic product.